Euro stable, pound falls on rate views

RachelKoning

EmilyChurch

CHICAGO (CBS.MW) - The euro recovered modestly from four-month yen lows and three-week dollar lows on Thursday, but prospects for a rate cut from the European Central Bank weighed on the shared currency.

The euro tumbled against the dollar Wednesday after comments from the head of the European Central Bank prompted speculation that Europe is closer to lowering interest rates, possibly as soon as its meeting next week. Lower rates would reduce the attractiveness of the euro to foreign investors.

The euro was trading unchanged at $1.2126 in late U.S. trading. The euro was little changed against its Japanese counterpart, at 128.70 yen.

ECB President Jean-Claude Trichet was scheduled to give a speech in Boston Thursday afternoon.

The U.S. dollar was flat against the yen, at 106.12, after data showed increased foreign investor appetite for Japanese stocks.

The British pound fell sharply Thursday after Bank of England Governor Mervyn King suggested the central bank is less likely to raise U.K. interest rates.

King said sterling's recent strength is making "life difficult" for exporters.

The pound was down 1 percent vs. the U.S. dollar, at $1.8071. The pound fell 1.2 percent vs. the euro.

"The prospect of a more balanced expansion of demand will not have been helped by the 3 percent rise in sterling since the February inflation report," King told parliamentary committee, AFX reported.

Higher interest rates would make the pound more attractive to foreign investors.

The ECB meets again on rates on April 1; the Bank of Engand meets April 8.

"Much can depend now on (Friday's) IFO outcome," said strategists at Fortis Bank, referring to the monthly German business confidence reading.

"If this turns out to be negative, speculation for a [ECB] rate cut on April 1 might rise strongly."

Expectations for higher U.S. interest rates, which would be dollar-supportive, increased this week with comments from regional Fed officials.

Atlanta Fed President Jack Guynn and Boston Fed President Cathy Minehan on Wednesday, as well as St. Louis Fed President on Thursday, said four-decade-low U.S. interest rates might not be acceptable if the economy grows as expected.

Federal Reserve Governor Donald Kohn, in a separate appearance o Thursday, said Fed "patience" with interest rates is still appropriate as risks to U.S. recovery persist. See the Economics and Politics page.

A U.S. report showed jobless benefits claims remained near their lowest level in three years. An inflation measure within the gross domestic product report also issued on Thursday showed some acceleration in revised fourth-quarter figures.

Japan draws investment

The greenback has fallen in recent sessions as Japanese dollar-buyer intervention has noticeably slowed, although has not likely ceased and may have limited the dollar's drop during Asian trading on Thursday, said analysts.

The dollar fell to 105.78 yen, its lowest level since mid-February, earlier on Thursday.

Japanese stock and economic results have boosted demand for the yen.

"The main reason behind the dollar's fall is the robust buying of yen among overseas investors who snap up Japanese stocks," said Masaki Fukui, vice president of the forex division at Mizuho Corporate Bank.

"The [terrorism] incidents in Spain and France also had a negative impact on the euro. I would not be surprised if the ECB cuts rates in the near future. I think there's an equal chance that ECB will cut rates this month or next," he said.

Net foreign investments in Japanese stocks reached a record high of 1.1483 trillion yen ($10.8 billion) last week, the Ministry of Finance said Thursday.

The global economic recovery has accelerated in the last six months, Treasury Secretary John Snow told U.S. lawmaker Thursday.

He also used the opportunity to urge Europe and Japan to step up growth efforts.

"Despite the positive outlook, we are convinced that action is needed to bring about stronger growth that is broad-based and sustainable-and less reliant on a single engine," he said.

Snow again called on China "to float its currency as soon as possible."

Snow said such a call is consistent with his support of a "strong dollar," which is in the U.S. national interest.

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